The Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) were lifelines for businesses during the COVID-19 pandemic. However, many businesses are now facing CEWS and CERS disputes as the Canada Revenue Agency (CRA) rigorously audits these subsidy claims. This article explains how to navigate a CEWS or CERS audit and dispute – from preparing for a CRA review, to filing objections and resolving issues. Business owners and accountants will find practical strategies to handle audits, challenge CRA decisions, and achieve the best possible resolution. By understanding the process and knowing your rights, you can tackle subsidy-related tax disputes with confidence.
Understanding CEWS and CERS Audits (Post-Pandemic Reality)
In 2020–2021, the federal government paid out massive amounts through CEWS and CERS to help employers survive lockdowns. With the programs now ended, the CRA has shifted focus to auditing CEWS and CERS claims for compliance. In fact, by the end of 2023 the CRA had already denied or adjusted about $458 million in CEWS payments after audits, and this audit initiative will be ongoing through at least 2025. What does this mean for businesses? Essentially, any company that received these subsidies could be selected for a detailed review to ensure they truly met the eligibility rules and calculated their claims correctly.
Why is the CRA auditing? It’s not necessarily that your company did something wrong – the CRA is simply verifying that funds were correctly claimed. As of June 30, 2025, approximately 91% of $19B in CEWS claims that were subject to audit have been approved. An Auditor General report had flagged concerns that some businesses might not have had the required revenue drop to qualify. The CRA’s own findings, however, indicate that most employers were largely compliant and many discrepancies were due to good-faith errors like calculation mistakes or missing documentation rather than intentional ineligibility. Nonetheless, if you claimed CEWS or CERS, you should be prepared for the possibility of an audit.
Preparing for a CEWS/CERS Audit: Documentation and Diligence
Getting the audit notice:
A CRA audit of CEWS or CERS follows the same steps as any other CRA audit. The CRA audit will begin with an official letter or phone call informing you that your CEWS or CERS claims are under review. The CRA’s audit request will likely be very detailed and comprehensive, asking for extensive records to substantiate your eligibility and calculations. For CEWS (wage subsidy) audits, you might need to provide documents like payroll records, employee pay details, revenue ledgers for the relevant periods, proof of your revenue decline (e.g. comparative financial statements, sales reports, and bank statements), and attestation forms regarding your CEWS eligibility. For CERS (rent subsidy) audits, similar information is required, except focused on rent. You may be asked for lease agreements, rent payment receipts, property expense statements, and the attestation forms regarding your rent calculations. The CRA typically gives about 30 days to supply all requested information.
Best practices for audit response:
Start by assembling all relevant documents for each claim period. This includes copies of any elections or forms you filed, financial records, and correspondence related to your applications. Ensure the numbers in your subsidy applications match your accounting records. If anything was calculated using estimates or special accounting methods, be ready to explain that. It’s wise to involve your tax dispute lawyer early – they can help you craft a thorough yet focused response. Remember, you must prove you met the specific eligibility criteria for each period (e.g. demonstrating the required revenue drop for a given month). Provide everything the CRA asks for, but do not volunteer extra information beyond the scope of the request. Unnecessarily broad disclosures could inadvertently trigger audits of other issues. A professional advisor can ensure you strike the right balance in complying with the audit.
Finally, keep communication professional and meet all deadlines. You can request an extension of time from the auditor if truly needed, but these are granted at the auditor’s discretion. Missing the 30-day response window without approval can lead to the CRA making a determination without your input – a situation you want to avoid.
Common Issues That Trigger CEWS/CERS Disputes
Why do some CEWS/CERS claims end up in disputes or get denied after an audit? Understanding common problem areas can help you avoid or address them:
Calculation errors: The subsidy amounts and revenue drop percentages involved complex formulas. A small mistake in computing your revenue decline or eligible wages can lead to an audit adjustment. Indeed, many CRA audit adjustments have been attributed to calculation errors in applications. Double-check all your worksheets and ensure you used the correct baseline periods and rates for each claim period.
Documentation gaps:
Insufficient documentation is another top reason for denied amounts. For CEWS, you must show proof of wages paid and proof of the revenue reduction for the relevant periods. For CERS, you need proof of rent or mortgage interest paid for the relevant periods. If your paperwork is missing or unclear – for example, no clear proof of the required revenue drop, or missing rent receipts – the CRA may deny that portion of the claim. Good record-keeping is your best defense.
Eligibility criteria issues:
Some businesses misunderstood the rules. For instance, CEWS required an actual drop in qualifying revenue by certain percentages; new businesses or those with unusual revenue patterns had special rules. If the CRA believes you didn’t truly meet the criteria for certain periods, they will claw back the subsidy. Likewise for CERS, there were strict conditions (e.g. having a qualifying commercial rent agreement in place before a cutoff date).
Attestation and compliance errors:
Both CEWS and CERS required applicants (or an officer) to attest to the accuracy of their information. If any required attestation form was missing or incorrect, it could cause issues. Additionally, businesses that used third-party advisors to file claims should be aware the CRA found that a large share of non-compliant claims involved third-party preparers, some of whom may have pushed aggressive interpretations and claims of CEWS and CERS. While most accountants and advisors acted responsibly, ensure that if an external consultant helped with your claim, you understand what they submitted. Ultimately, the business is responsible for the claims made on its behalf.
Fraud or misrepresentation:
In a few cases, the CRA has uncovered deliberate abuse – like inventing employees or manipulating revenues. These situations can lead to severe consequences, including penalties or even criminal investigation. The CRA has already referred some egregious cases to its Criminal Investigations Program. If there’s any aspect of your claim that could be viewed as intentionally false, consult a tax lawyer immediately. It’s better to address and correct it through the audit/objection process than to risk a criminal proceeding.
After the Audit: CRA’s Decision and Your Options
When the CRA audit concludes, you will receive the auditor’s decision. This usually comes in a letter enclosing a Notice of (Re)Assessment or Notice of Determination for your CEWS/CERS amounts. There are a few possible outcomes:
- No change: Congratulations – the CRA accepted your documentation and left your subsidy claims intact. In this best-case scenario, the audit is closed with no further action needed.
- Partial denial or adjustment: The CRA might agree with some parts of your claim and disagree with others. For example, they may allow CEWS for some months but deny it for others, or approve your base subsidy but deny the top-up, etc. They will typically reassess the amounts, which could mean you owe back a portion of the subsidies, possibly with interest. This is a very common outcome.
- Full denial with penalties: In the worst case, the CRA determines none of your subsidy claim was eligible, and they not only demand full repayment but also impose penalties (e.g. a 25% penalty for gross misrepresentation, if they believe that applies). This is rare unless something was significantly wrong or deceptive in the claim.
If you agree with the CRA’s adjustments, you can simply pay any amount owing (or the CRA may offset it against future tax refunds). However, if you disagree with the outcome, you have the right to dispute the CRA’s decision. This kicks off theobjection and appeals process, which is essentially a tax dispute resolution mechanism.
Filing a Notice of Objection (Challenging the CRA’s Assessment)
A Notice of Objection is the formal way to tell the CRA “I disagree with your assessment/determination and I want an impartial review.” For CEWS or CERS disputes, an objection is filed just as it would be for any tax assessment. Key points to know:
Deadline:
You generally have 90 days from the date of the CRA’s notice of reassessment/determination to file your objection. This deadline is strict. If you miss it, you do have a safety net of an additional one-year extension period – but you must apply for the extension and give a valid reason for missing the original 90 days. (The CRA may or may not accept a late objection, so it’s far better to file within 90 days if at all possible.)
How to file:
An objection can be filed online through the CRA’s “My Business Account” portal or by mailing a Form T400A. In your objection, clearly identify the audit decision you’re disputing (include reference numbers from the notice) and explain each point of disagreement. Attach any evidence that supports your position – perhaps financial statements, invoices, lease agreements, or correspondence – essentially, anything that refutes the CRA’s findings or fills gaps they identified. New evidence is allowed at the objection stage, even if you didn’t provide it to the auditor initially, so take the opportunity to strengthen your case with additional proof or analysis.
Impartial review:
Once your objection is filed, the file is transferred away from the audit department to the CRA Appeals Division. An Appeals Officer (who was not involved in the original audit) will independently review the caset. This officer may contact you (or your representative) for discussions. It’s worth noting that the Appeals Officer has the power to agree with you in full, partially allow your objection, or uphold the auditor’s decision. They may also be open to settlement discussions. Throughout this stage, remain responsive and cooperative. It often takes several months (sometimes more than a year for complex cases) for the CRA Appeals Division to finalize a decision.
Requirement to Object to Each Period:
You are required to file a Notice of Objection for each CEWS & CERS period being objected to. While you do not need to file a seperate document for each CEWS & CERS period, the Notice of Objection you file must specify each and every CEWS & CERS period to which the Objection applies. Failing to do so will result in you losing the right to object to the CEWS & CERS periods not specified when the 90 day deadline expires, subject to the one-year extension period.
Resolution Through CRA Appeals or Tax Court
After reviewing your objection, the CRA Appeals Division will issue its decision in writing. They will either allow your objection (in whole or part) – which means they agree and will adjust or cancel the reassessment accordingly – or confirm the assessment (deny your objection). You’ll receive a Notice of Decision or Notice of Confirmation. If you’re satisfied at this stage (e.g. CRA Appeals grants you some relief and you choose to accept the partial win), then the dispute ends there. If you’re still not satisfied, you have another avenue: appealing to the Tax Court of Canada.
Appealing to the Tax Court:
This is the first step of the judicial process, and it’s independent of the CRA. You have 90 days from the CRA’s Appeals decision to file a Notice of Appeal to the Tax Court. (If the Appeals Division drags its feet and more than 90 days pass since you filed your objection with no decision, you also have the right to appeal to the Tax Court. Most Objections take considerably longer than 90 days and most people wait for the Appeals decision, but the option exists if CRA Appeals is unresponsive.)
Tax Court litigation is a big step – it involves preparing a Notice of Appeal, likely engaging in examinations for discovery and settlement talks with a lawyer from the Department of Justice, and eventually a court hearing before a judge if no settlement is reached. The good news is that many tax disputes resolve before a formal trial. Settlements can occur at most times during the process. However, to even initiate a Tax Court appeal, you will almost certainly need a tax litigation lawyer to navigate the rules and procedures. The court process can be lengthy (a year or more) but it offers an impartial adjudication if you genuinely believe the CRA is wrong on the law or facts.
Strategies for Success in CEWS/CERS Disputes
Navigating a CEWS or CERS dispute can be complex and time-consuming. Here are key strategies to improve your chances of a favorable outcome:
Act promptly at every stage:
Whether it’s responding to an initial audit request or filing an objection, meet every deadline. Mark the 90-day objection deadline the moment you receive an audit assessment notice. Prompt action preserves your rights – delay can be costly or even forfeit your chance to dispute.
Stay organized with evidence:
Treat the audit and any appeals like building a case. Create a folder (digital or physical) with all relevant documents per subsidy period. Use checklists to ensure you’ve provided proof for every requirement (revenue drops, employee wages, rent paid, etc.). During the objection, reference these documents clearly. Good organization not only helps the reviewer understand your position but also signals that you are a diligent, credible taxpayer.
Know the rules (or consult someone who does):
The CEWS/CERS rules are intricate. Review the eligibility criteria for each period that’s under dispute – sometimes the outcome turns on a technical detail. For example, knowing that the normal tax audit limitation (3 years) applies to CEWS determinations unless there’s misrepresentation attributable to carelessness, neglect or wilful default could be relevant if your audit is looking at an older period; or understanding the specific definition of “qualifying revenue” or “affiliated groups” might help argue why your calculation was correct. If this sounds overwhelming, get professional advice. A tax lawyer experienced in COVID-19 subsidy disputes can quickly pinpoint the strengths and weaknesses of your case.
Maintain a professional, solutions-focused tone:
Whether writing to the auditor or appeals officer, or testifying in Tax Court, remain factual and respectful. Emotional or accusatory language won’t help and can detract from the merits. Focus on resolving the issues by providing facts and legal arguments. If you made a mistake, it’s okay to acknowledge a minor error while firmly standing your ground on points you truly contest.
Consider settlement or relief options:
Not every dispute is all-or-nothing. If, for instance, the CRA is correct on some points but you have a strong case on others, you (or your representative) can negotiate during the appeals stage. The CRA may agree to concede certain periods or amounts if you concede others. Moreover, if you end up owing money back and it creates a financial hardship, you can separately request taxpayer relief for interest or penalties (this is outside the objection process, but a useful last resort if you cannot pay the full amount). Settlement is often a pragmatic resolution to avoid the cost and stress of court.
Learn and adapt:
Ensure compliance going forward. The government introduced these programs in a hurry, and many businesses applied in good faith. If you’ve been through a CEWS/CERS audit, use it as a learning experience to improve your record-keeping and compliance for any future programs. Document decisions in writing (e.g. lease agreements, employee changes) to avoid misunderstandings.
Conclusion: Resolve Disputes Proactively and Seek Help When Needed
Facing a CEWS or CERS dispute can be daunting, but with the right approach, you can navigate audits, objections, and appeals effectively. The key is to be proactive: prepare thoroughly, respond timely, and use the channels available to you (internal appeals and courts) to make your case. Many disputes stem from misunderstandings or minor errors that can be corrected by providing additional information to the CRA. By staying organized and informed, you improve your chances of a successful resolution – whether that means the CRA overturns an incorrect decision or at least reduces the amount you have to repay.
If you’re unsure about any step, remember that you don’t have to go it alone. These processes – from audits to Tax Court – are routine for our firm’s tax lawyers, who have helped many clients in similar situations.
